Provided legal support in a tax dispute over gas being classified which was produced together with oil

A team from our tax practice provided legal support to a client that sought to challenge a tax audit report. The point at issue was that the company, when it produces oil, also extracts associated gas, which, under the Russian Tax Code, should be taxed at a 0% rate. However, the tax authority believed that the goal of the production was gas rather than oil. In that case, the gas is not associated gas and is subject to the general tax rate.

Within the framework of the project, our lawyers assessed numerous technical issues of how production was carried out and even engaged some third-party experts. The project was especially challenging due to the fact that no such disputes had previously occurred in practice.

Our practice group's team drafted an appeal to the Russian Federal Tax Service and also participated in the process when the appeal was considered at the HQ of the Federal Tax Service.  During the appeal, our lawyers proved that the tax inspectorate's approach was incorrect (the case for the previous period had been lost in the commercial courts).

The question of whether gas that is extracted together with oil is classified as associated gas or as free gas is of the utmost importance for companies that produce gas at deposits which are recognised to be challenging to develop owing to their parameters. Therefore, the decision on this case also has significant importance for other mining companies.